What is one purpose of a Loan Estimate provided to mortgage applicants?

The Loan Estimate serves multiple purposes, but one of its primary functions is to estimate closing costs. This document, which lenders are required to provide to applicants within three business days of receiving a loan application, outlines the expected costs associated with closing the mortgage transaction. By listing these costs, borrowers gain a clearer picture of the overall financial obligation they will incur when finalizing the loan, which helps them make informed decisions.

The Loan Estimate includes details such as origination charges, third-party services, and taxes, thereby allowing borrowers to understand how much money they will need at closing and plan accordingly. This transparency is essential as it promotes informed borrowing and can also assist applicants in comparing different loan offers from various lenders without being misled by hidden fees or costs.

In contrast, while outlining the terms of the loan is a function of the Loan Estimate, it is the costs associated with closing the loan that are highlighted for borrowers. The other options, such as detailing credit reports or disclosing risks of foreclosure, do not fall under the primary objectives of this specific document.